14
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the quarterly
period ended September 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number
0-25732
ATLAS AIR, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1207329
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
538 Commons Drive, Golden, Colorado 80401
(Address of principal executive offices)(Zip Code)
(303) 526-5050
(Registrant's telephone number, including area code)
Indicated by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ x ] Yes [ ] No
As of November 10, 1997 the Registrant had 22,450,229 shares of
$.01 par value Common Stock outstanding.
ATLAS AIR, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets-
September 30, 1997 and December 31, 1996
Consolidated Statements of Operations-
Quarter and Nine Months Ended September 30, 1997
and 1996
Consolidated Statements of Cash Flows-
Nine Months Ended September 30, 1997 and 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
Signatures
ATLAS AIR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30, December 31,
1997 1996
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 30,729 $ 9,793
Short-term investments 114,687 114,870
Accounts receivable, net and
other 54,960 49,603
Total current assets 200,376 174,266
Property and equipment:
Flight equipment 1,083,679 638,630
Other 6,881 3,933
1,090,560 642,563
Less: accumulated depreciation (85,923) (58,293)
Net property and equipment 1,004,637 584,270
Other assets:
Debt issuance costs 22,682 12,382
Deposits 3,309 2,789
25,991 15,171
Total assets $1,231,004 $773,707
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
debt and aircraft obligations $ 49,394 $ 21,561
Accounts payable and accrued
expenses 104,178 47,763
Income tax payable 58 6,267
Total current liabilities 153,630 75,591
Long-term debt, net of current 715,627 462,868
portion
Deferred aircraft obligations, 103,513 --
net of current portion
Deferred income tax payable 31,882 22,875
Commitments and contingencies
(Note 5)
Stockholders' equity:
Preferred Stock, $1 par value;
10,000,000 shares authorized;
no shares issued -- --
Common Stock, $0.01 par value;
50,000,000 shares authorized;
22,450,229 shares issued 225 225
Additional paid-in capital 172,841 172,841
Retained earnings 53,648 39,543
Treasury Stock, at cost; 16,225
and 5,850 shares, respectively (362) (236)
Total stockholders' equity 226,352 212,373
Total liabilities and
stockholders' equity $1,231,004 $773,707
The accompanying notes are an integral part of these
consolidated financial statements.
ATLAS AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Quarter Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenues:
Contract services $101,136 $ 75,101 $264,930 $199,087
Scheduled services 339 2,145 7,020 4,719
Charters and other 2,722 2,435 8,198 7,138
Total operating
revenues 104,197 79,681 280,148 210,944
Operating expenses:
Flight crew salaries
and benefits 7,491 6,105 21,437 16,971
Other flight-related
expenses 6,825 7,553 20,546 19,648
Maintenance 33,458 21,758 88,470 54,138
Aircraft and engine 7,794 7,072 23,279 18,745
rentals
Fuel and ground 1,909 3,389 9,024 7,637
handling
Depreciation and 11,010 6,658 30,183 16,751
amortization
Other 13,977 7,100 31,888 18,931
Write-off of capital
investment and
other -- -- 27,100 --
Total operating
expenses 82,464 59,635 251,927 152,821
Operating income 21,733 20,046 28,221 58,123
Other income
(expense):
Interest income 1,669 2,228 5,161 4,979
Interest expense (13,599) (9,435) (37,246) (24,885)
(11,930) (7,207) (32,085) (19,906)
Income (loss) before
income taxes 9,803 12,839 (3,864) 38,217
(Provision for)
benefit from income
taxes (3,578) (4,638) 1,411 (13,775)
Income (loss) before
extraordinary item 6,225 8,201 (2,453) 24,442
Extraordinary item:
Gain from
extinguishment of
debt, net of
applicable taxes
of $9,622 -- -- 16,740 --
Net income $ 6,225 $ 8,201 $ 14,287 $ 24,442
Earnings per common
share:
Income (loss) before
extraordinary item $ 0.28 $ 0.37 $ (0.11) $ 1.15
Extraordinary item -- -- 0.75 --
Net income per
common share $ 0.28 $ 0.37 $ 0.64 $ 1.15
Weighted average
common shares
outstanding 22,450 22,430 22,450 21,185
The accompanying notes are an integral part of these consolidated
financial statements.
ATLAS AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
1997 1996
Operating activities:
Net income $ 14,287 $ 24,442
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 31,283 16,751
Amortization of debt issuance cost 2,418 1,581
Net gain on disposition of property
and equipment (1,090) --
Write-off of capital investment and
other 27,100 --
Change in deferred income tax payable 9,007 7,850
Extraordinary gain (26,362) --
Changes in operating assets and
liabilities:
Accounts receivable and other (15,310) (16,916)
Deposits (520) 629
Accounts payable and accrued expenses 44,065 16,405
Income tax payable (6,209) 5,515
Net cash provided by operating
activities 78,669 56,257
Investment activities:
Purchase of property and equipment (335,526) (198,896)
Sale of property and equipment 3,750 --
Purchase of short-term investments (1,270,707) (189,083)
Maturity of short-term investments 1,270,890 76,442
Net cash used in investing activities (331,593) (311,537)
Financing activities:
Issuance of Common Stock -- 106,278
Purchase of Treasury Stock (802) (776)
Issuance of Treasury Stock 493 335
Borrowings on notes payable 769,719 94,165
Principal payments on notes payable (479,185) (15,554)
Debt issuance costs (16,365) (5,979)
Net cash provided by financing
activities 273,860 178,469
Net increase (decrease) in cash 20,936 (76,811)
Cash and cash equivalents at beginning 9,793 96,990
of period
Cash and cash equivalents at end of
period $ 30,729 $ 20,179
The accompanying notes are an integral part of these
consolidated financial statements.
ATLAS AIR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Unaudited Consolidated Financial Statements
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting only of normal recurring items) necessary to present
fairly the financial position of Atlas Air, Inc. and its wholly-
owned subsidiaries (collectively, the "Company") as of September
30, 1997 and the results of operations and cash flows for the
periods presented. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted pursuant to the Securities and Exchange Commission's
rules and regulations. The results of operations for the periods
presented are not necessarily indicative of the results to be
expected for the full year. Management believes the disclosures
made are adequate to ensure that the information is not
misleading, and recommends that these financial statements be
read in conjunction with the Company's December 31, 1996 audited
financial statements.
2. Reclassifications
Certain prior year amounts have been reclassified to conform
to current year presentation.
3. Recently Issued Accounting Standard
In February, 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No.
128 "Earnings per Share." The purpose of SFAS No. 128 is to
simplify the computation of earnings per share ("EPS") and to
make the U.S. standard for computing EPS more compatible with the
EPS standards of other countries and with that of the
International Accounting Standards Committee. The effective date
for the application of SFAS No. 128 for both interim and annual
periods is after December 15, 1997. Earlier application is not
permitted. The Company does not expect the application of SFAS
No. 128 to have a material impact on its EPS calculation.
4. Short-Term Investments
Proceeds from the secondary public offering of the Company's
Common Stock in May 1996, plus additional funds, were invested in
various held-to-maturity securities, as defined in SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities," which requires investments in debt securities to be
classified as held-to-maturity and measured at amortized cost in
the statement of financial position only if the reporting
enterprise has the positive intent and ability to hold those
securities to maturity. The following table sets forth the
aggregate fair value, gross unrealized holding gains, gross
unrealized holding losses, and amortized/accreted cost basis by
major security type as of September 30, 1997 (in thousands):
Gross Gross
Aggregate Unrealized Unrealized
Security Fair Holding Holding (Amortization)
Type Value Gains Losses Accretion
Commercial
Paper $ 97,268 $ - $ 19 $ (21)
U.S.
Government
Agencies 11,036 8 5 (109)
Corporate
Notes 200 - - 1
Market
Auction
Preferred 6,000 - - -
Totals $ 114,504 $ 8 $ 24 $ (129)
In addition, there was approximately $.2 million of accrued
interest on Short-Term Investments at September 30, 1997.
Interest earned on these investments and maturities of these
investments are reinvested in similar securities.
5. Commitments and Contingencies
In November 1994, Boeing issued Nacelle Strut Modification
Service Bulletins which have been converted into Directives by
the FAA. Twelve of the Company's 747-200 aircraft would have to
be brought into compliance with such Directives within the next
three years at an estimated aggregate cost of approximately $6.0
million. As part of the FAA's overall aging aircraft program, it
has issued Directives requiring certain additional aircraft
modifications to be accomplished prior to the aircraft reaching
20,000 cycles. The average cycle time for the Company's 17 747-
200 aircraft in service (excluding the aircraft leased from
Federal Express) is approximately 12,000 cycles and the average
cycles operated per year is 800 cycles. The Company estimates
that the modification costs per aircraft will range between $2
million and $3 million. Between now and the year 2000, only one
aircraft is expected to reach the 20,000 cycle limit and nine
additional aircraft will require modification prior to the year
2009. The remaining seven aircraft in service (excluding the
aircraft leased from Federal Express) have already undergone such
modifications. Prior to acquiring used 747-200 aircraft, the
Company requires the seller to demonstrate that such aircraft are
in compliance with all Directives as of the purchase date. At
the same time, the Company examines all Directives that are known
to apply to such aircraft at a future date. The Company's
freighter conversion program incorporates any and all Directives
compliance work that would otherwise have been required prior to
the next major maintenance event in order to minimize unscheduled
maintenance. Other Directives have been issued that require
inspections and minor modifications to Boeing 747-200 aircraft.
It is possible that additional Service Bulletins or Directives
applicable to the types of aircraft included in the Company's
fleet could be issued in the future. The cost of compliance with
such Directives cannot be estimated, but could be substantial.
In January 1996, the Company entered into a contract with
Langdon Asset Management, Inc. for the purpose of acquiring six
Boeing 747-200 passenger aircraft and certain spare engines and
spare parts from Thai Airways International Public Company
Limited ("Thai Airways"). The average cost of the six aircraft,
including conversion costs from passenger to freighter
configuration by The Boeing Company ("Boeing"), approximates $45
million. The aircraft were placed into service by the Company
from the end of September 1996 through September 1997. The
Company obtained financing from Finova Capital Corporation for
approximately 80% of the cost of the first aircraft. Financing
for the acquisition and conversion of the remaining five aircraft
was initially secured through the Aircraft Credit Facility (see
Note 3 of the Company's December 31, 1996 audited financial
statements).
In March 1996, the Company entered into an agreement with
Federal Express Corporation ("FedEx") to lease five 747-200
freighter aircraft, plus spare engines. The first four aircraft
sub-leased from FedEx were delivered to the Company between March
1996 and September 1996. The fifth aircraft was delivered to the
Company in April 1997 and was subsequently placed in service as a
spare aircraft. Each aircraft subleased from FedEx has a lease
term ending in January 1998. The lease rate is $450,000 per
month per aircraft. While the Company has scheduled the return
of these aircraft, it is currently discussing a short-term
extension of the lease term in order to operate the aircraft
through the peak cargo service season and be able to perform
necessary maintenance in the first quarter of 1998 prior to
returning the aircraft. In addition, the Company purchased on
January 2, 1997 a Boeing 747 simulator from FedEx for a purchase
price of $2.1 million.
In January 1997, the Company extended two of its existing
contracts with China Airlines Ltd., which were not otherwise due
for renewal until 1998. Each of the contracts was extended for a
further three years into the year 2001. In addition, the Company
entered into three long-term ACMI contracts with South American
carriers, two with Fast Air Carrier, S.A. and one with Lineas
Aereas Suramericanas, S.A., for 1997 through 1999.
In February 1997, the Company filed a complaint for
declaratory judgment in the Colorado District Court, Jefferson
County against Israel Aircraft Industries Ltd. ("IAI") for
mechanical problems the Company experienced with respect to the
aircraft the Company sub-leased from IAI. The Company is seeking
approximately $1 million in damages against IAI to be set off by
the amount, if any, the Company owes IAI pursuant to the sub-
lease. IAI had the case removed to the U.S. District Court,
District of Colorado in April 1997 and subsequently filed a
separate complaint against the Company in the U.S. District
Court, Eastern District of New York alleging damages of
approximately $9 million based on claims arising from the sub-
lease. The Company intends to vigorously defend against all of
IAI's claims.
In February 1997, the Company entered into the Second
Amended and Restated Credit Agreement with respect to its
existing Aircraft Credit Facility. The purpose of the amendment
was to increase the revolving line from $175 million to $275
million for the purpose of acquiring additional aircraft,
including spare engines and modification costs associated with
cargo configuration, as necessary. The Company commenced draw
downs under the additional $100 million facility in the second
quarter of 1997.
In March 1997, the Company refinanced one of its aircraft
with Nationsbanc Leasing Corporation ("Nationsbanc"). This
aircraft was previously financed through the Aircraft Credit
Facility. The Nationsbanc financing provides for a fixed
interest rate of 9.16% and a seven year term, extendible under
certain circumstances to ten years.
In March 1997, Air Support International, Inc. ("ASI") filed
a complaint against the Company in the U.S. District Court,
Eastern District of New York alleging actual and punitive damages
of approximately $13.5 million arising from the Company's refusal
to pay commissions which ASI claims it is owed for allegedly
arranging certain ACMI contracts. The Company intends to
vigorously defend against all of ASI's claims.
In May 1997, the Company purchased one 747-200 aircraft from
Citicorp Investor Lease, Inc. ("Citicorp") which is currently on
lease to Philippine Airlines ("PAL"). The Company is currently
negotiating the termination of the lease with PAL following which
the aircraft will be modified from passenger to freighter
configuration by Boeing. The aircraft was financed with funds
drawn under the Aircraft Credit Facility.
In May 1997, Atlas Freighter Leasing, Inc. ("AFL"), a wholly-
owned subsidiary of the Company, entered into a $185 million term
loan facility (the "AFL Term Loan Facility"), with Bankers Trust
Company ("BTCo"), an affiliate of BT Securities Corporation,
acting as agent, to refinance six 747-200 aircraft previously
owned by the Company through another wholly-owned subsidiary of
the Company (the "AFL Transaction"). The proceeds of the AFL
Term Loan Facility were used to repay an existing term loan
facility for which the Company received a significant prepayment
incentive credit. In addition, this refinancing allowed the
Company to reduce its overall indebtedness and the ongoing
interest expense associated with these aircraft.
In June 1997, the Company entered into an agreement (the
"Boeing Purchase Contract") with Boeing to purchase 10 new 747-
400 freighter aircraft. The 747-400 freighter aircraft are
currently scheduled to be delivered as follows: 4 in 1998, 2 in
1999, 3 in 2000 and 1 in 2001. Due to production problems at
Boeing, the Company believes that the 1998 delivery positions of
the 747-400 aircraft may be delayed up to 60 days. While Boeing
will appropriately compensate the Company for any delays in
delivery of the 747-400 aircraft, any such delays may adversely
impact the Company's ability to initiate service with prospective
customers in a timely fashion. The Boeing Purchase Contract also
provides the Company with an option to purchase up to 10
additional 747-400 freighter aircraft for delivery from 1999
through 2002. The Company is also discussing with Boeing the
possible addition of one 747-400 aircraft to its firm aircraft
order. As a result of the Company being the largest purchaser of
747-400 freighter aircraft to date, it was able to negotiate from
Boeing a significant discount off the aggregate list price of
$1.7 billion for the 10 747-400 freighter aircraft, four
installed engines per aircraft and five spare engines. The
Boeing Purchase Contract requires that the Company pay deposits
to Boeing prior to the delivery date of each 747-400 freighter
aircraft (the "Pre-Delivery Deposits") in order to secure
delivery of the 747-400 freighter aircraft and to defray a
portion of the manufacturing costs. The Company expects that the
maximum total amount of Pre-Delivery Deposits at any time
outstanding will be approximately $125 million, approximately
$100.1 million of which was paid as of November 3, 1997. In
addition, the Boeing Purchase Contract provides for a deferral of
a portion of the Pre-Delivery Deposits ("Deferred Aircraft
Obligations") for which the Company accrues interest. As of
September 30, 1997, there was $123.6 million of Deferred Aircraft
Obligations outstanding, of which $20.1 million represented the
current portion. The Deferred Aircraft Obligations are recorded
in the assets and liabilities on the balance sheet based upon a
Pre-Delivery Deposits schedule, which is an integral part of the
Boeing Purchase Contract.
In August 1997, the Company completed an offering (the
"Offering") of a total principal amount of $150,000,000 of its 10
3/4% Senior Notes due 2005. The proceeds from the Offering were
used to, among other things, repay short-term indebtedness
incurred by the Company to make Pre-Delivery Deposits and were
used, and will be used, to make additional Pre-Delivery Deposits
as they become due. As the 747-400 freighter aircraft are
purchased upon delivery and Pre-Delivery Deposits are refunded by
Boeing to the Company, the proceeds from the Offering may be used
to fund a portion of the total purchase price of the 747-400
freighter aircraft or, alternatively, for general corporate
purposes by the Company. Additional third-party financing will
be required at the time of delivery of each of the 747-400
freighter aircraft. The Company intends to secure such permanent
financing from a combination of aircraft financing transactions,
including long-term fixed-rate equipment trust certificates,
leveraged lease financing, other long-term purchase money
security financing or debt or equity financing. There can be no
assurance that the Company will be able to obtain sufficient
financing to fund the purchase of the 747-400 freighter aircraft,
or if such financing is available, that it will be available on
commercially reasonable terms. If it is unable to do so, the
Company could be required to modify its expansion plans or to
incur higher than anticipated financing costs, which could have a
material adverse effect on the Company.
In September 1997, the Company completed certain refinancing
and restructuring transactions (the "Refinancings") with respect
to certain of the Company's existing indebtedness in order to
provide the Company with greater financial flexibility in
anticipation of the financing requirements for the acquisition of
the 747-400 freighter aircraft by, among other things, extending
maturities of certain indebtedness, reducing interest expense and
making certain covenants less restrictive. The Refinancings
included (i) a new, $185 million seven-year amortizing term loan
facility (the "AFL II Term Loan Facility) for a new wholly-owned
subsidiary of the Company formed for the sole purpose of owning
and leasing four 747-200 aircraft and nine spare engines
currently owned by the Company and financed by the Company's
existing Aircraft Credit Facility; (ii) an amendment and
restatement of the Aircraft Credit Facility to (a) provide for a
new two-year revolving period followed by a three-year amortizing
term loan period, (b) provide for a reduction in the credit
spread for borrowings based on financial performance and (c) make
the financial covenants less restrictive to facilitate the
upcoming financings required in connection with the acquisition
of the 747-400 freighter aircraft; and (iii) an amendment to the
financial covenants of the existing AFL Term Loan Facility to
facilitate the financings required in connection with the
acquisition of the 747-400 freighter aircraft.
In September 1997, the Company filed a registration
statement with the Securities and Exchange Commission for the
purpose of registering and exchanging up to $150 million
aggregate principal amount of its new 10 3/4% Senior Notes due
2005 (the "New Notes"), for a like principal amount of its
outstanding 10 3/4% Senior Notes due 2005 (the "Old Notes", also
discussed above as the "Offering"), which have not been so
registered. The terms of the New Notes are identical in all
material respects to the Old Notes, except for certain transfer
restrictions relating to the Old Notes. The Company expects to
accept for exchange any and all Old Notes validly tendered and
not withdrawn prior to December 4, 1997, unless extended.
In September 1997, the Company entered into an interest rate
swap with BTCo for the purpose of hedging its floating rate
debt. The notional amount of the interest rate swap is $210
million for a term of eight years. The Company pays a fixed
interest rate and receives a floating interest rate based on 3-
month LIBOR, whereby the net interest settles quarterly.
The Company is in negotiations with a lender for a $25
million revolving credit facility for general working capital
purposes.
6. Write-off of Capital Investment and Other
In conjunction with the June 1997 agreement with Boeing to
purchase 10 new 747-400 freighter aircraft, the Company assessed
the economic viability of renewing on a longer-term basis the sub-
leases with FedEx for five 747-200 freighter aircraft. Based on
the results of this assessment in the second quarter of 1997, the
Company decided to schedule the return of these aircraft in the
first quarter of 1998. The Company wrote-off its remaining
investment in the five FedEx aircraft and established certain
other reserves.
The impact of the various largely non-recurring charges was
$27.1 million, or $17.2 million on an after-tax basis, which
comprised write-offs of various leasehold improvements associated
with the Company's sub-leases with FedEx of the five 747-200
aircraft, which would otherwise be expensed over the second half
of 1997 and reserves for costs necessary to return the aircraft
upon the termination of the sub-leases. In addition, the Company
established reserves primarily related to certain customers and
vendors for out-of-period items for which the Company is
currently in negotiations. In addition, the reserves include
estimates for litigation costs and other costs not expected to re-
occur.
7. Extraordinary item
The Company recorded an extraordinary after-tax gain of
$16.7 million, resulting from the receipt of a prepayment
incentive credit associated with the refinancing of six 747-200
aircraft representing approximately $228 million of indebtedness
in the second quarter of 1997. This refinancing allowed the
Company to reduce its overall indebtedness and the ongoing
interest expenses associated with these aircraft. (See Note 5)
8. Subsequent Events
In October 1997, the Company drew down an additional $14.2
million from its Aircraft Credit Facility subsequent to the
completion of the conversion of the sixth Thai Aircraft to
freighter configuration at the end of September 1997.
In October 1997, Atlas Flightlease, Inc. ("AFI"), a wholly-
owned subsidiary of the Company, secured 2-year LIBOR based
financing with BTCo for approximately 80% of the purchase price
of the Challenger corporate aircraft, which AFI purchased from
MAC Flightlease in the third quarter of 1997. AFI intends to
obtain permanent financing for this aircraft; however, there can
be no assurance that such financing will be available to AFI or
that such financing obtained will be on satisfactory terms and
conditions.
In November 1997, the Company began trading its common stock
on the New York Stock Exchange under the symbol "CGO."
Previously, the common stock of the Company was traded on the
NASDAQ national Market System under the symbol "ATLS."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company, through its predecessors, began its operations
on April 22, 1992 with one Boeing 747-200 in the service of China
Airlines Ltd. and expanded its operations to a second Boeing 747-
200 in November 1992. These operations were undertaken on behalf
of the Company by another carrier utilizing pilot crews, dispatch
facilities, maintenance operations and other services provided by
such carrier. As a result, the Company's operations prior to
1993 were primarily limited to aircraft leasing and start-up
activities. The Company initiated cargo services under the name
of Atlas Air, Inc. in February 1993. The Company's fleet
currently consists of 22 Boeing 747-200 aircraft in freighter
service and two 747-200 passenger aircraft under lease to a third
party.
The cargo operations of the Company's airline customers are
seasonal in nature, with peak activity occurring traditionally in
the second half of the year, and with a significant decline
occurring in the first quarter. This decline in cargo activity
is largely due to the decrease in shipping that occurs following
the December and January holiday seasons associated with the
celebration of Christmas and the Chinese New Year. Certain of
the Company's customers have, in the past, elected to use that
period of the year to exercise their contractual options to
cancel a limited number (generally not more than 5% per year) of
guaranteed hours with the Company, and are expected to continue
to do so in the future. As a result, the Company's revenues
typically decline in the first quarter of the year as its
contractual aircraft utilization level temporarily decreases.
The Company seeks to schedule, to the extent possible, its major
aircraft maintenance activities during this period to take
advantage of any unutilized aircraft time.
The aircraft acquisitions, lease arrangements and
modification schedule are described in Note 1 of the Company's
December 31, 1996 audited consolidated financial statements. The
timing of when an aircraft enters the Company's fleet can affect
not only annual performance, but can make quarterly results vary,
thereby affecting the comparability of operations from period to
period.
The tables below sets forth selected financial and operating
data for the first, second and third quarters of 1997 and 1996,
and the four quarters of the years ended December 31, 1996 and
1995 (dollars in thousands).
1997
Cumu- 3rd 2nd 1st
lative Quarter Quarter Quarter
Total operating
revenues $280,148 $104,197 $93,902 $82,049
Operating expenses 251,927 82,464 104,556 64,907
Operating income 28,221 21,733 (10,654) 17,142
(loss)
Other income (32,085) (11,930) (10,908) (9,248)
(expense)
Net income 14,287 6,225 3,048 5,013
Block hours 52,921 19,937 17,541 15,443
Average aircraft
operated 19.1 20.4 19.5 17.2
Operating margin 10.1% 20.9% (11)% 20.9%
1996
Cumu- 3rd 2nd 1st
lative Quarter Quarter Quarter
Total operating
revenues $210,944 $79,681 $72,614 $58,649
Operating expenses 152,821 59,635 49,947 43,239
Operating income 58,123 20,046 22,667 15,410
Other income (19,906) (7,207) (6,982) (5,717)
(expense)
Net income 24,442 8,201 10,037 6,203
Block hours 40,642 15,444 14,073 11,125
Average aircraft
operated 13.4 15.4 14.0 10.8
Operating margin 27.6% 25.2% 31.2% 26.3%
1996
Cumu- 4th 3rd 2nd 1st
lative Quarter Quarter Quarter Quarter
Total
operating
revenues $315,659 $104,715 $79,681 $72,614 $58,649
Operating
expenses 227,596 74,775 59,635 49,947 43,239
Operating
income 88,063 29,940 20,046 22,667 15,410
Other
income (28,475) (8,569) (7,207) (6,982) (5,717)
(expense)
Net income 37,838 13,397 8,201 10,037 6,203
Block hours 59,445 18,803 15,444 14,073 11,125
Average
aircraft
operated 14.7 18.4 15.4 14.0 10.8
Operating
margin 27.9% 28.6% 25.2% 31.2% 26.3%
1995
Cumu- 4th 3rd 2nd 1st
lative Quarter Quarter Quarter Quarter
Total
operating
revenues $171,267 $56,142 $47,769 $38,418 $28,938
Operating
expenses 128,593 39,982 34,844 28,370 25,397
Operating
income 42,674 16,160 12,925 10,048 3,541
Other
income (16,435) (4,014) (4,805) (4,287) (3,330)
(expense)
Net income 17,831 8,352 5,568 3,861 50
Block hours 33,265 10,809 9,076 7,568 5,812
Average
aircraft
operated 7.7 9.4 8.2 6.9 6.1
Operating
margin 24.9% 28.8% 27.1% 26.2% 12.2%
Operating Revenues and Results of Operations
Total operating revenues for the quarter ended September 30,
1997 increased to $104.2 million compared to $79.7 million for
the same period in 1996, an increase of approximately 31%. The
average number of aircraft in the Company's fleet during the
third quarter of 1997 was 20.4 compared to 15.4 during the same
period in 1996. Total block hours for the third quarter of 1997
were 19,937 compared to 15,444 for the same period in 1996, an
increase of approximately 29%, principally reflecting the
increase in the size of the Company's fleet. Revenue per block
hour increased by approximately 1% to $5,226 for the third
quarter of 1997 compared to $5,159 for the third quarter of 1996.
Net income of $8.2 million for the third quarter of 1996 declined
to a net income of $6.2 million for the third quarter of 1997,
primarily due to the increase in interest expense associated with
the increase in aircraft in service quarter over quarter.
Total operating revenues for the nine months ended September
30, 1997 were $280.1 million compared to $210.9 million for the
year-earlier period, an increase of approximately 33%. The
average number of aircraft in the Company's fleet during the nine
months ended September 30, 1997 was 19.1 compared to 13.4 during
the same period in 1996. Total block hours for the first nine
months of 1997 were 52,921 compared to 40,642 for the same period
in 1996, an increase of approximately 30%, principally reflecting
the increase in the size of the Company's fleet. Revenue per
block hour increased by approximately 2% to $5,294 for the first
nine months of 1997 compared to $5,190 for the year-earlier
period, primarily as a result of an increase in higher-yielding
charter operations.
Operating income of $58.1 million for the first nine months
of 1996 decreased to $28.2 million for the first nine months of
1997, primarily due to the largely non-cash charge to earnings of
$27.1 million in the second quarter of 1997. This charge
included the write-off of the Company's remaining balance sheet
investment in the five aircraft sub-leased from FedEx, as well as
the establishment of certain reserves associated with costs
necessary to return the aircraft in the first quarter of 1998 and
other non-recurring items. Excluding this charge, operating
income was $55.3 million for the first nine months of 1997
compared to $58.1 million for the year-earlier period, or a
decrease of approximately 5%. There were an average of 4.6
aircraft sub-leased from FedEx operating in the 1997 period
compared to an average of 1.2 aircraft sub-leased from FedEx
operating in the 1996 period, with respect to which maintenance
costs are substantially higher than for the rest of the Company's
fleet. In addition, the Company incurred $1.2 million of costs
in the first quarter of 1997 related to the return of two leased
aircraft to their respective lessors. In the second quarter of
1997, the realization of an after-tax extraordinary gain of
$16.7 million, resulting from the receipt of a prepayment
incentive credit associated with the refinancing of approximately
$228 million of indebtedness during the second quarter, for the
most part offset the after-tax charge of $17.2 million with
respect to the impact on net income for the first nine months of
1997. For the nine months ended September 30, 1997, net income
was $14.3 million compared to $24.4 million for the year-earlier
period. This decrease in earnings was primarily due to the
increase in interest expense associated with the increase in
aircraft in service year over year and the higher maintenance
costs with respect to the aircraft sub-leased from FedEx.
Operating expenses
The Company's principal operating expenses include flight
crew salaries and benefits; other flight-related expenses;
maintenance; aircraft and engine rentals; fuel costs and ground
handling; depreciation and amortization; and selling, general and
administrative expenses.
Flight crew salaries and benefits include all such expenses
for the Company's pilot work force. Flight crew salaries and
benefits increased to $7.5 million in the third quarter of 1997
compared to $6.1 million in the same period of 1996, due to
increases in the number of aircraft in the Company's fleet and
aircraft block hours. While actual expense increased by
approximately 23% during the third quarter of 1997, on a block
hour basis this expense declined by approximately 5% to $376 per
block hour for the third quarter of 1997 from $395 per block hour
for the same period in 1996. For the first nine months of 1997,
actual expense increased by approximately 26%, from $17.0 million
to $21.4 million, but on a block hour basis declined to $405 per
block hour from $418 per block hour for the same period in 1996,
or approximately 3%. These reductions of approximately 5% and
3%, respectively, were due to increased efficiency in staffing
levels and scheduling resulting from the increased level of
operations.
Other flight-related expenses include hull and liability
insurance on the Company's fleet of Boeing 747-200 aircraft, crew
travel and meal expenses, initial and recurring crew training
costs and other expenses necessary to conduct its flight
operations.
Other flight-related expenses decreased to $6.8 million in
the third quarter of 1997 compared to $7.6 million in the third
quarter of 1996, but increased to $20.5 million in the nine
months ended September 30, 1997 compared to $19.6 million for the
year-earlier period, or approximately a 10% decrease and
approximately a 5% increase, respectively, due primarily to lower
training and travel costs in the third quarter of 1997 compared
to spending levels for such costs in the first half of 1997. The
impact of the larger fleet size for the first nine months of 1997
compared to the year-earlier period was partially offset by a
reduction in the Company's aircraft hull and liability insurance
rates based on its increased size and favorable operating
history. As a result of this and other operating efficiencies,
on a block hour basis, other flight-related expenses declined by
approximately 30% to $342 per block hour for the third quarter of
1997 compared to $489 per block hour for the same period in 1996,
and by approximately 20% to $388 per block hour for the nine
months ended September 30, 1997 compared to $483 per block hour
for the same period in 1996.
Maintenance expenses include all expenses related to the
upkeep of the aircraft, including maintenance, labor, parts,
supplies and maintenance reserves. The costs of C Checks,
significant maintenance work every 18 months, and D checks, major
maintenance events, and engine overhauls not otherwise covered by
maintenance reserves are capitalized as they are incurred and
amortized over the life of the maintenance event. In addition,
in January 1995 the Company contracted with KLM Royal Dutch
Airlines ("KLM") for a significant part of its regular
maintenance operations and support on a fixed cost per flight
hour basis. Effective October 1996, certain aircraft engines
were additionally accepted into the GE engine maintenance
program, also on a fixed cost per flight hour basis, pursuant to
a 10 year maintenance agreement.
Maintenance expense increased to $33.5 million in the third
quarter of 1997 from $21.8 million in the same period of 1996,
and to $88.5 million in the nine months ended September 30, 1997
from $54.1 million in the nine months ended September 30, 1996,
or approximately 54% and 63%, respectively, partially due to the
increase in the Company's average fleet size and partially due to
the higher maintenance costs with respect to the aircraft sub-
leased from FedEx. On a block hour basis, maintenance expense
increased year over year by approximately 19% and 26%,
respectively, primarily due to higher maintenance costs
associated with the aircraft sub-leased from FedEx. This block
hour comparison represents a decrease in spending compared to the
second quarter 1997 and the first half of 1997, for which the
Company experienced increases of approximately 44% and 30%,
respectively.
Aircraft and engine rentals include the cost of leasing
aircraft and spare engines, as well as the cost of short-term
engine leases required to replace engines removed from the
Company's aircraft for either scheduled or unscheduled
maintenance and any related short-term replacement aircraft lease
costs.
Aircraft and engine rentals were $7.8 million in the third
quarter of 1997 compared to $7.1 million in the same period of
1996, and were $23.3 million in the first nine months of 1997
compared to $18.7 million in the first nine months of 1996, or an
increase of approximately 10% and 24%, respectively. During the
third quarter of 1997 and 1996 the Company leased approximately
the same number of aircraft. For the first nine months of 1997,
the Company leased one additional aircraft as compared to the
year-earlier period. Engine rentals were comparable for the same
year over year periods.
Because of the nature of the Company's ACMI contracts with
its airline customers, under which the Company is responsible
only for the ownership cost and maintenance of the aircraft and
for supplying aircraft crews and insurance, the Company's airline
customers bear all other operating expenses, including fuel and
fuel servicing; marketing costs associated with obtaining cargo;
airport cargo handling; landing fees; ground handling; aircraft
push-back and de-icing services; and specific cargo and mail
insurance. As a result, the Company incurs fuel and ground
handling expenses only when it operates on its own behalf, either
in scheduled services, for ad hoc charters or for ferry flights.
Fuel expenses for the Company's non-ACMI contract services
include both the direct cost of aircraft fuel as well as the cost
of delivering fuel into the aircraft. Ground handling expenses
for non-ACMI contract service include the costs associated with
servicing the Company's aircraft at the various airports to which
it operates as well as other direct flight related costs.
Fuel and ground handling costs decreased to $1.9 million for
the third quarter of 1997 compared to $3.4 million for the third
quarter of 1996, and to $9.0 million for the nine months ended
September 30, 1997 compared to $7.6 million for the nine months
ended September 30, 1996, or a decrease of approximately 44% and
an increase of approximately 18%, respectively. This was due to
the relative decrease in scheduled service, charter and other non-
ACMI block hours to 304 block hours in the third quarter of 1997
from 680 block hours in the year-earlier period, and an increase
to 1,546 block hours for the nine months of 1997 from 1,456 block
hours in the first nine months of 1996. In addition, fuel prices
have increased year over year for the same periods.
Depreciation and amortization expense includes depreciation
on aircraft, spare parts and ground equipment, and the
amortization of capitalized major aircraft maintenance and engine
overhauls.
Depreciation and amortization expense increased to $11.0
million in the third quarter of 1997 from $6.7 million in the
same period of 1996, and to $30.2 million in the first nine
months of 1997 from $16.8 million in the first nine months of
1996, or approximately 65% and 80%, respectively. This increase
reflects an increase of approximately 50% in owned aircraft,
approximately 150% in spare engines and an approximate three-fold
increase in spare parts for the third quarter of 1997 and for the
first nine months of 1997 over the same periods in 1996. In
addition, Other Revenues include $0.4 million and $1.1 million of
depreciation for the third quarter of 1997 and the first nine
months of 1997, respectively, associated with the net lease of
two aircraft which are currently in passenger configuration.
Other operating expenses include salaries, wages and
benefits for all employees other than pilots; accounting and
legal expenses; supplies; travel and meal expenses, excluding
those of the aircraft crews; commissions; and other miscellaneous
operating costs.
Other operating expenses increased to $14.0 million in the
third quarter of 1997 from $7.1 million in the same period of
1996, and $31.9 million for the first nine months of 1997 from
$18.9 million in the same period of 1996, or approximately 97%
and 68% respectively, reflecting the increase in the Company's
operations. On a block hour basis, these expenses increased to
$701 per block hour in the third quarter of 1997 from $460 per
block hour in the same period of 1996, and to $603 per block hour
for the first nine months of 1997 from $466 in the same period of
1996, or approximately 52% and 29%, respectively. This increase
in cost was due primarily to additional personnel and other
resources necessary to properly manage the Company's increased
operations and to prepare for the introduction of the 747-400
aircraft.
Other Income (Expense)
Other income (expense) consists of interest income and
interest expense. Interest income for the third quarter of 1997
was $1.7 million compared to $2.2 million for the same period in
1996, due to a lower short-term investment level for the third
quarter of 1997 compared to the third quarter of 1996. Interest
income of $5.2 million for the first nine months of 1997
increased from $5.0 million for the year-earlier period,
representing comparative short-term investment levels for both
nine month periods. Interest expense increased to $13.6 million
in the third quarter of 1997 from $9.4 million in the same period
of 1996, and to $37.2 million in the first nine months of 1997
from $24.9 million in the first nine months of 1996, or
approximately 44% and 50%, respectively, primarily resulting from
an increase of approximately 50% in financed flight equipment
between these periods.
Income Taxes
Pursuant to the provisions of SFAS No. 109 "Accounting for
Income Taxes," the Company has recorded a tax provision based on
tax rates in effect during the period. Accordingly, the Company
accrued taxes at the rate of 36.5% during the third quarter and
the first nine months of 1997 and 36.0% during the third quarter
and first nine months of 1996. Due to significant capital costs,
which are depreciated at an accelerated rate for tax purposes, a
majority of the Company's tax provision in these periods is
deferred.
Seasonality
The cargo operations of the Company's airline customers are
seasonal in nature, with peak activity occurring traditionally in
the second half of the year, and with a significant decline
occurring in the first quarter (discussed above). In the first
quarter of 1997, the Company's customers opted to take the
majority of their contractual cancellations, in contrast to last
year's first quarter, when very few cancellations occurred.
Liquidity and Capital Resources
At September 30, 1997, the Company had cash and cash
equivalents of approximately $30.7 million, short-term
investments of approximately $114.7 million and working capital
of approximately $46.7 million. During the first nine months of
1997, cash and cash equivalents increased approximately $20.9
million, principally reflecting cash provided from operations of
$78.7 million, proceeds from equipment financings of $769.7
million and net proceeds from the sale and purchase of short-term
investments of $0.2 million, substantially offset by the net sale
and purchase of investments in flight and other equipment of
$331.8 million, principal reductions of indebtedness of $479.2
million, debt issuance costs of $16.4 million and net treasury
stock purchases of $0.3 million.
In November 1994, Boeing issued Nacelle Strut Modification
Service Bulletins which have been converted into Directives by
the FAA. Twelve of the Company's 747-200 aircraft would have to
be brought into compliance with such Directives within the next
three years at an estimated aggregate cost of approximately $6.0
million. As part of the FAA's overall aging aircraft program, it
has issued Directives requiring certain additional aircraft
modifications to be accomplished prior to the aircraft reaching
20,000 cycles. The average cycle time for the Company's 17 747-
200 aircraft in service (excluding the aircraft leased from
Federal Express) is approximately 12,000 cycles and the average
cycles operated per year is 800 cycles. The Company estimates
that the modification costs per aircraft will range between $2
million and $3 million. Between now and the year 2000, only one
aircraft is expected to reach the 20,000 cycle limit and nine
additional aircraft will require modification prior to the year
2009. The remaining seven aircraft in service (excluding the
aircraft leased from Federal Express) have already undergone such
modifications. Prior to acquiring used 747-200 aircraft, the
Company requires the seller to demonstrate that such aircraft are
in compliance with all Directives as of the purchase date. At
the same time, the Company examines all Directives that are known
to apply to such aircraft at a future date. The Company's
freighter conversion program incorporates any and all Directives
compliance work that would otherwise have been required prior to
the next major maintenance event in order to minimize unscheduled
maintenance. Other Directives have been issued that require
inspections and minor modifications to Boeing 747-200 aircraft.
It is possible that additional Service Bulletins or Directives
applicable to the types of aircraft included in the Company's
fleet could be issued in the future. The cost of compliance with
such Directives cannot be estimated, but could be substantial.
In February 1997, the Aircraft Credit Facility was expanded
from $175 million to $275 million for the same purposes and under
substantially the same terms and conditions as the initial
facility. Certain financial tests must be met before each
purchase of aircraft and related drawdown under the facility. To
date, the Company has met these tests. If in the future, the
Company cannot meet such tests because of the difficult
sequencing of aircraft acquisition, aircraft conversion and
customer contracts, the Company believes that other financing
sources would be available to the Company or the Company would
acquire aircraft using its internal cash or seek a waiver of any
necessary conditions. As part of the Refinancings (defined
below), the Company repaid approximately $168.3 million of
previous draw downs under the Aircraft Credit Facility and the
Aircraft Credit Facility was amended and restated to provide for
$250 million of availability, a new two year revolving period
and, at the Company's option, a subsequent three year term loan.
As of October 1997, the Company had approximately $80.2 million
outstanding under the Aircraft Credit Facility.
In addition, in March 1997, the Company refinanced one of
its aircraft with Nationsbanc Leasing Corporation
("Nationsbanc"). This aircraft was previously financed through
the Aircraft Credit Facility. The Nationsbanc financing provides
for a fixed interest rate of 9.16% and a seven year term,
extendible under certain circumstances to ten years.
In May 1997, the Company acquired from Citicorp Investor
Lease, Inc. ("Citicorp") one 747-200 passenger aircraft for a
purchase price of $25 million, including two spare engines. In
connection with the purchase of the aircraft from Citicorp, the
Company agreed to assume Citicorp's lessor interest in the lease
of such aircraft to Philippine Airlines, Inc. ("PAL") for the
remainder of the lease term, which expires in June 1998. The
Company is currently negotiating with PAL for the early
termination of the lease and delivery to the Company of this
aircraft (along with a separate 747-200 passenger aircraft
similarly acquired by the Company in December 1996) for
conversion to freighter configuration, although there can be no
assurances in that regard.
In May 1997, Atlas Freighter Leasing, Inc. ("AFL"), a wholly-
owned subsidiary of the Company, entered into a $185 million term
loan facility (the "AFL Term Loan Facility"), with Bankers Trust
Company ("BTCo"), an affiliate of BT Securities Corporation,
acting as agent, to refinance six 747-200 aircraft previously
owned by the Company through another wholly-owned subsidiary of
the Company (the "AFL Transaction"). The proceeds of the AFL
Term Loan Facility were used to repay all existing principal and
interest due under an existing term loan facility for which the
Company received a significant prepayment incentive credit. In
addition, this refinancing allowed the Company to reduce its
overall indebtedness and the ongoing interest expense associated
with these aircraft.
In June 1997, the Company entered into an agreement (the
"Boeing Purchase Contract") with Boeing to purchase 10 new 747-
400 freighter aircraft. The 747-400 freighter aircraft are
currently scheduled to be delivered as follows: 4 in 1998, 2 in
1999, 3 in 2000 and 1 in 2001. Due to production problems at
Boeing, the Company believes that the 1998 delivery positions of
the 747-400 aircraft may be delayed up to 60 days. While Boeing
will appropriately compensate the Company for any delays in
delivery of the 747-400 aircraft, any such delays may adversely
impact the Company's ability to initiate service with prospective
customers in a timely fashion. The Boeing Purchase Contract also
provides the Company with an option to purchase up to 10
additional 747-400 freighter aircraft for delivery from 1999
through 2002. The Company is also discussing with Boeing the
possible addition of one 747-400 aircraft to its firm aircraft
order. As a result of the Company being the largest purchaser of
747-400 freighter aircraft to date, it was able to negotiate from
Boeing a significant discount off the aggregate list price of
$1.7 billion for the 10 747-400 freighter aircraft, four
installed engines per aircraft and five spare engines. The
Boeing Purchase Contract requires that the Company pay deposits
to Boeing prior to the delivery date of each 747-400 freighter
aircraft (the "Pre-Delivery Deposits") in order to secure
delivery of the 747-400 freighter aircraft and to defray a
portion of the manufacturing costs. The Company expects that the
maximum total amount of Pre-Delivery Deposits at any time
outstanding will be approximately $125 million, approximately
$100.1 million of which was paid as of November 3, 1997. In
addition, the Boeing Purchase Contract provides for a deferral of
a portion of the Pre-Delivery Deposits ("Deferred Aircraft
Obligations") for which the Company accrues interest. As of
September 30, 1997, there was $123.6 million of Deferred Aircraft
Obligations outstanding, of which $20.1 million represented the
current portion.
In August 1997, the Company completed an offering (the
"Offering") of a total principal amount of $150,000,000 of its 10
3/4% Senior Notes due 2005. The proceeds from the Offering were
used to, among other things, repay short-term indebtedness
incurred by the Company to make Pre-Delivery Deposits and were
used, and will be used, to make additional Pre-Delivery Deposits
as they become due. As the 747-400 freighter aircraft are
purchased upon delivery and Pre-Delivery Deposits are refunded by
Boeing to the Company, the proceeds from the Offering may be used
to fund a portion of the total purchase price of the 747-400
freighter aircraft or, alternatively, for general corporate
purposes by the Company. Additional third-party financing will
be required at the time of delivery of each of the 747-400
freighter aircraft. The Company intends to secure such permanent
financing from a combination of aircraft financing transactions,
including long-term fixed-rate equipment trust certificates,
leveraged lease financing, other long-term purchase money
security financing or debt or equity financing. There can be no
assurance that the Company will be able to obtain sufficient
financing to fund the purchase of the 747-400 freighter aircraft,
or if such financing is available, that it will be available on
commercially reasonable terms. If it is unable to do so, the
Company could be required to modify its expansion plans or to
incur higher than anticipated financing costs, which could have a
material adverse effect on the Company.
In September 1997, the Company completed certain refinancing
and restructuring transactions (the "Refinancings") with respect
to certain of the Company's existing indebtedness in order to
provide the Company with greater financial flexibility in
anticipation of the financing requirements for the acquisition of
the 747-400 freighter aircraft by, among other things, extending
maturities of certain indebtedness, reducing interest expense and
making certain covenants less restrictive. The Refinancings
included (i) a new, $185 million seven-year amortizing term loan
facility (the "AFL II Term Loan Facility) for a new wholly-owned
subsidiary of the Company formed for the sole purpose of owning
and leasing four 747-200 aircraft and nine spare engines
currently owned by the Company and financed by the Company's
existing Aircraft Credit Facility; (ii) an amendment and
restatement of the Aircraft Credit Facility to (a) provide for a
new two-year revolving period followed by a three-year amortizing
term loan period, (b) provide for a reduction in the credit
spread for borrowings based on financial performance and (c) make
the financial covenants less restrictive to facilitate the
upcoming financings required in connection with the acquisition
of the 747-400 freighter aircraft; and (iii) an amendment to the
financial covenants of the existing AFL Term Loan Facility to
facilitate the financings required in connection with the
acquisition of the 747-400 freighter aircraft.
In September 1997, the Company filed a registration
statement with the Securities and Exchange Commission for the
purpose of registering and exchanging up to $150 million
aggregate principal amount of its new 10 3/4% Senior Notes due
2005 (the "New Notes"), for a like principal amount of its
outstanding 10 3/4% Senior Notes due 2005 (the "Old Notes", also
discussed above as the "Offering"), which have not been so
registered. The terms of the New Notes are identical in all
material respects to the Old Notes, except for certain transfer
restrictions relating to the Old Notes. The Company expects to
accept for exchange any and all Old Notes validly tendered and
not withdrawn prior to December 4, 1997, unless extended.
In September 1997, the Company entered into an interest rate
swap with BTCo for the purpose of hedging its floating rate
debt. The notional amount of the interest rate swap is $210
million for a term of eight years. The Company pays a fixed
interest rate and receives a floating interest rate based on 3-
month LIBOR, whereby the net interest settles quarterly.
Due to the contractual nature of the Company's business, the
Company's management does not consider its operations to be
highly working capital-intensive in nature. Because most of the
non-ACMI costs normally associated with operations are borne by
and directly paid for by the Company's customers, the Company
does not incur significant costs in advance of the receipt of
corresponding revenues. Moreover, ACMI costs, which are the
responsibility of the Company, are generally incurred on a
regular, periodic basis ranging from flight hours to months.
These costs are largely matched by revenue receipts, as the
Company's contracts require regular payments from its customers,
based upon current flight activity, generally every two to four
weeks. As a result, the Company has not in the past had a
requirement for a working capital facility. The Company is in
negotiations with a lender for a $25 million revolving credit
facility for general working capital purposes.
The Company believes that cash on hand, the cash flow
generated from its operations and the proceeds from the May 1996
public offering of its common stock and the Offering, coupled
with availability under the Aircraft Credit Facility, will be
sufficient to meet its normal ongoing liquidity needs for 1997.
From time to time the Company engages in discussions with
third parties regarding possible acquisitions of aircraft that
could expand the Company's operations. The Company is in
negotiations for the acquisition of additional aircraft,
principally for delivery to the Company in 1998 and beyond.
Forward-looking Information
To the extent that any of the statements contained herein
relating to the Company's expectations, assumptions and other
Company matters are forward-looking, they are made in reliance
upon the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such statements are based on
current expectations that involve a number of uncertainties and
risks that could cause actual results to differ materially from
those projected in the forward-looking statements, including, but
not limited to, risks associated with: worldwide business and
economic conditions; product demand and the rate of growth in the
air cargo industry; the impact of competitors and competitive
aircraft and aircraft financing availability; the ability to
attract and retain new and existing customers; normalized
aircraft operating costs and reliability; management of growth;
the continued productivity of its workforce; dependence on key
personnel; and regulatory matters. For additional information
regarding these and other risk factors, reference is made to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996.
ATLAS AIR, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27 - Financial Data Schedule.
b. Reports filed on Form 8-K
Report filed on Form 8 -K on
September 30, 1997, relative to the
resignation of Mickey P. Foret as
President and Director of the
Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ATLAS AIR, INC.
(Registrant)
Date: November 12, 1997 By:/s/ Richard H. Shuyler
Richard H. Shuyler
Senior Vice President - Finance
Chief Financial Officer and
Treasurer (Principal Accounting
Officer)
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] SEP-30-1997
[CASH] 30,729
[SECURITIES] 114,687
[RECEIVABLES] 54,960
[ALLOWANCES] 8,841
[INVENTORY] 0
[CURRENT-ASSETS] 200,376
[PP&E] 1,004,637
[DEPRECIATION] 85,923
[TOTAL-ASSETS] 1,231,004
[CURRENT-LIABILITIES] 153,630
[BONDS] 715,627
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 225
[OTHER-SE] 226,127
[TOTAL-LIABILITY-AND-EQUITY] 1,231,004
[SALES] 280,148
[TOTAL-REVENUES] 280,148
[CGS] 0
[TOTAL-COSTS] 251,927
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 32,085
[INCOME-PRETAX] (3,864)
[INCOME-TAX] 1,411
[INCOME-CONTINUING] (2,453)
[DISCONTINUED] 0
[EXTRAORDINARY] 16,740
[CHANGES] 0
[NET-INCOME] 14,287
[EPS-PRIMARY] .64
[EPS-DILUTED] 0
</TABLE>
